how pmt function works, what is its background / machanizm?

  • Thread starter Mujeeb ur Rehman, FBL-GRW-PK
  • Start date
M

Mujeeb ur Rehman, FBL-GRW-PK

Even I have obtained the result by using the function PMT. But I still
consfuse that how PMT function works, what is its background / machanizm.
When we give parameters in this function, how this function manipulate the
parameters and give us result?

Also how can find any function's background / machanizm in excel help?
 
J

joeu2004

Mujeeb said:
Even I have obtained the result by using the function PMT. But I still
consfuse that how PMT function works, what is its background / machanizm.
When we give parameters in this function, how this function manipulate the
parameters and give us result?
Click to expand...

Take a look at the mathematical formula at the bottom of the Help page
for the PV() function. Algebraically solve for "pmt". If that does
not sufficiently answer your question, you might google for "present
value formulas" (without quotes). For example,
http://en.wikipedia.org/wiki/Present_value might be useful.
 
J

JRW

Here's the equation I found for calculating payment (PMT) if PV (mortgage
amount), n (number of payment periods) and i (interest rate) are known:

http://www.frickcpa.com/tvom/TVOM_formulas.asp

(see PMT - Present value of Annuity) Note that "i" is the interest rate per
payment period. If payment period is monthly, "i" is (annual interest
rate/12) and the annual interest rate is in decimal form (0.08) vs..
percentage (8%).

The formula here is a lot easer to follow, IMHO.

Hope that this helps.
 
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